Supply Chain Management PDF

1.1 Supply Chain Management and Supply Chain Processes Farmer Syrup Bottler Distributor Retailer producer  Learning Objectives  Explain the term ‘supply chain management’ and its objective  Identify the decision phases in SCM...

1.1 Supply Chain Management and Supply Chain Processes Farmer Syrup Bottler Distributor Retailer producer  Learning Objectives  Explain the term ‘supply chain management’ and its objective  Identify the decision phases in SCM  Identify the five stages of the supply chain  Explain the interactions of the four process cycles of supply chains Copyright © 2016 Pearson Education, Inc. 1–2  What is a Supply Chain?  All stages involved, directly or indirectly, in fulfilling a customer request  Includes manufacturers, suppliers, transporters, warehouses, retailers, and customers  Within each company, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service) Copyright © 2016 Pearson Education, Inc. 1–3  What is a Supply Chain?  Customer is an integral part of the supply chain  Includes movement of products from suppliers to manufacturers to distributors and information, funds, and products in both directions  May be more accurate to use the term “supply network” or “supply web”  Typical supply chain stages: customers, retailers, wholesalers/distributors, manufacturers, component/raw material suppliers  All stages may not be present in all supply chains (e.g., no retailer or distributor for Dell) Copyright © 2016 Pearson Education, Inc. 1–4  What is a Supply Chain? It encompasses every effort involved in producing and delivering a final product or service from the supplier’s supplier to the customer’s customer Supply Chain Council Suppliers Manufacturers Distributors Retailers Customers Goods Flow Cash Flow Information Flow Copyright © 2016 Pearson Education, Inc. 1–5  What is a Supply Chain? FIGURE 1-1 Copyright © 2016 Pearson Education, Inc. 1–6  What is a Supply Chain? Samsung or Other Handset Mobile Service Customer wants Phone Distributor or Operator/ handsets and goes Manufacturers 3rd party DC Retailer to the store Printed Circuit Product Plastic Casing LCD Assembly Board (PCB) Packaging Manufacturers Manufacturers Manufacturers Manufacturers Petrochemical ICs/ IC Wafer/ Pulp/Paper -Resins Transistors LCD Suppliers Suppliers Suppliers Suppliers FIGURE 1-1a Copyright © 2016 Pearson Education, Inc. 1–7  Flows in a Global Supply Chain  A global network of organizations and activities that supply a firm with goods and services  Members of the supply chain collaborate to achieve high levels of customer satisfaction, efficiency and competitive advantage Suppliers Manufacturers Distributors Retailers Customers Suppliers Manufacturers Distributors Retailers Customers Suppliers Manufacturers Distributors Retailers Customers Supply Chain Stages : supported by a network of transporters and warehouse service providers Copyright © 2016 Pearson Education, Inc. FIGURE 1-2 1–8  Supply Chain Management (SCM)  ‘is simply the process of optimizing the delivery of goods, services and information from supplier to customer, balancing supply and demand ’ Gartner Group  ‘includes managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer’ Supply Chain Council Copyright © 2016 Pearson Education, Inc. 1–9  Key Characteristics of SCM  Inventory  Visibility  Pull systems  Landed Cost  Companies must realize that their strategies may affect the landed cost  Coordination of supply chain activities may lower the landed cost Copyright © 2016 Pearson Education, Inc. 1 – 10  Key Characteristics of SCM  Real-time two way information flows  Customer service  Levels must be tailored to each customer  Not all customers require the same service  Supply chain relationships  Collaborative planning  Share risks and rewards Copyright © 2016 Pearson Education, Inc. 1 – 11  The Objective of a Supply Chain Benefit Value = Cost As perceived by the Customer Copyright © 2016 Pearson Education, Inc. 1 – 12  The Objective of a Supply Chain  Maximize Overall Value generated Supply Chain Surplus = CustomerValue – Supply Chain Cost *Overall Value is also known as Supply Chain Surplus Copyright © 2016 Pearson Education, Inc. 1 – 13  The Objective of a Supply Chain  Example: a customer purchases a wireless router from Best Buy for $60 (revenue)  Customers clearly value it at or above $60. Thus, part of supply chain surplus is left with the customer as consumer surplus, i.e difference between the value of the product and its price.  Supply chain incurs costs (information, storage, transportation, produce components, assembly, etc.)  Difference between $60 and the sum of all of these costs is the supply chain profit  Supply chain profitability is total profit to be shared across all stages of the supply chain Copyright © 2016 Pearson Education, Inc. 1 – 14  The Objective of a Supply Chain  Success should be measured by total supply chain profitability, not profits at an individual stage  Customer the only source of revenue  Sources of cost include flows of information, products, or funds between stages of the supply chain  Effective supply chain management is the management of supply chain assets and product, information, and fund flows to grow the total supply chain surplus Copyright © 2016 Pearson Education, Inc. 1 – 15 Importance of Supply Chain Decisions (Case Studies)  Wal-Mart, $1 billion sales in 1980 to $469 billion in 2013  Seven-Eleven Japan, ¥1 billion sales in 1974 to ¥1.9 trillion in 2013  Online grocery e-tailer, Webvan folded in two years  Borders, $4 billion in 2004 to $2.8 billion in 2009  Dell, $56 billion in 2006, adopted new supply chain strategies that supported rapid, low-cost customization Copyright © 2016 Pearson Education, Inc. 1 – 16  Key Point Supply chain design, planning, and operation decisions play a significant role in the success or failure of a firm. To stay competitive, supply chains must adapt to changing technology and customer expectations. Copyright © 2016 Pearson Education, Inc. 1 – 17  Supply Chain Decisions Do all supply chain look alike and have How to meet same objectives? the changing customer needs? What is the best supply chain for Will competitors the business? do it better, faster & cheaper? Supply chain management is not static but evolves and changes over time in tandem with the business environment Copyright © 2016 Pearson Education, Inc. 1 – 18 Decision Phases in a Supply Chain 1. Supply chain strategy or design How to structure the supply chain over the next several years 2. Supply chain planning Decisions over the next quarter or year 3. Supply chain operation Daily or weekly operational decisions Copyright © 2016 Pearson Education, Inc. 1 – 19  Supply Chain Strategy  For supply chain strategy to be complete and successful, it needs to be linked to a company’s business strategy and integrated with product creation and marketing strategies Business Strategy Supply Chain Strategy New Product Marketing Strategy Strategy New Marketing Product and Operations Distribution Service Development Sales Finance, Accounting, Information Technology, Human Resources Copyright © 2016 Pearson Education, Inc. 1 – 20 Supply Chain Strategy or Design  Decisions about the configuration of the supply chain, allocation of resources, and what processes each stage will perform  Strategic supply chain decisions  Outsource supply chain functions  Locations and capacities of facilities  Products to be made or stored at various locations  Modes of transportation  Information systems  Supply chain design must support strategic objectives  Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty Copyright © 2016 Pearson Education, Inc. 1 – 21  Supply Chain Planning  Definition of a set of policies that govern short-term operations  Fixed by the supply configuration from strategic phase  Goal is to maximize supply chain surplus given established constraints  Starts with a forecast of demand in the coming year Copyright © 2016 Pearson Education, Inc. 1 – 22  Supply Chain Planning  Planning decisions:  Which markets will be supplied from which locations  Planned buildup of inventories  Subcontracting  Inventory policies  Timing and size of market promotions  Must consider demand uncertainty, exchange rates, competition over the time horizon in planning decisions Copyright © 2016 Pearson Education, Inc. 1 – 23  Supply Chain Operation  Time horizon is weekly or daily  Decisions regarding individual customer orders  Supply chain configuration is fixed and planning policies are defined  Goal is to handle incoming customer orders as effectively as possible  Allocate orders to inventory or production, set order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders  Much less uncertainty (short time horizon) Copyright © 2016 Pearson Education, Inc. 1 – 24 Barriers to Supply Chain Management  Regulatory and political considerations  Lack of top management commitment  Reluctance to share, or use, relevant data  Incompatible information systems  Incompatible corporate cultures Copyright © 2016 Pearson Education, Inc. 1 – 25  Key Point Supply chain decision phases may be categorized as design, planning, or operational, depending on the time frame during which the decisions made apply. Design decisions constrain or enable good planning, which in turn constrains or enables effective operation. Copyright © 2016 Pearson Education, Inc. 1 – 26  Process Views of a Supply Chain 1. Cycle View: The processes in a supply chain are divided into a series of cycles, each performed at the interface between two successive stages of the supply chain. 2. Push/Pull View: The processes in a supply chain are divided into two categories, depending on whether they are executed in response to a customer order or in anticipation of customer orders. Pull processes are initiated by a customer order, whereas push processes are initiated and performed in anticipation of customer orders. Copyright © 2016 Pearson Education, Inc. 1 – 27 Cycle View of Supply Chain Processes FIGURE 1-3 Copyright © 2016 Pearson Education, Inc. 1 – 28  Cycle View of Supply Chains Customer  Each cycle occurs at the interface between two successive stages Customer Order Cycle  Customer order cycle (customer- retailer) Retailer  Replenishment cycle (retailer- Replenishment Cycle distributor)  Manufacturing cycle (distributor- Distributor manufacturer)  Procurement cycle (manufacturer- Manufacturing Cycle supplier)  Cycle view clearly defines processes Manufacturer involved and the owners of each process. Specifies the roles and Procurement Cycle responsibilities of each member and the desired outcome of each process. Supplier Copyright © 2016 Pearson Education, Inc. 1 – 29  Customer Order Cycle  Involves all processes directly involved in receiving and Customer Order Cycle filling the customer’s order  Customer arrival Customer Customer Order Arrival  Customer order entry Receiving  Customer order fulfillment Customer Customer  Customer order receiving Order Entry Order Fulfillment Copyright © 2016 Pearson Education, Inc. 1 – 30  Replenishment Cycle  All processes involved in replenishing retailer inventories Replenishment Cycle (retailer is now the customer)  Retail order trigger Retail Order Retail Order  Retail order entry Trigger Receiving  Retail order fulfillment  Retail order receiving Retail Order Retail Order Entry Fulfillment Copyright © 2016 Pearson Education, Inc. 1 – 31  Manufacturing Cycle  All processes involved in replenishing distributor (or Manufacturing Cycle retailer) inventory  Order arrival from the Order Receiving distributor, retailer, or Arrival customer  Production scheduling Production Manufacture  Manufacturing and shipping Scheduling and Ship  Receiving at the distributor, retailer, or customer Copyright © 2016 Pearson Education, Inc. 1 – 32  Procurement Cycle  All processes necessary to ensure that materials are available for manufacturing to Procurement Cycle occur according to schedule  Manufacturer orders components from Order on suppliers to replenish component Manufacturer’s Receiving at inventories Schedule or Supplier Manufacturer Stocking Needs  However, component orders can be determined precisely from production Supplier Component schedules (different from Production Manufacture retailer/distributor orders that are based on Scheduling and Ship uncertain customer demand)  Important that suppliers be linked to the manufacturer’s production schedule Copyright © 2016 Pearson Education, Inc. 1 – 33  Key Point A cycle view of the supply chain clearly defines the processes involved and the owners of each process. This view is useful when considering operational decisions because it specifies the roles and responsibilities of each member of the supply chain and the desired outcome for each process. Copyright © 2016 Pearson Education, Inc. 1 – 34  Push/Pull View of Supply Chains FIGURE 1-5 Copyright © 2016 Pearson Education, Inc. 1 – 35  Push/Pull View of Supply Chain Processes  Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand  Pull: execution is initiated in response to a customer order (reactive)  Push: execution is initiated in anticipation of customer orders (speculative)  Push/pull boundary separates push processes from pull processes Copyright © 2016 Pearson Education, Inc. 1 – 36 Push/Pull View – L.L. BePan FIGURE 1-6 Copyright © 2016 Pearson Education, Inc. 1 – 37  Push/Pull View – Ethan Allen FIGURE 1-7 Copyright © 2016 Pearson Education, Inc. 1 – 38  Key Point A push/pull view of the supply chain categorizes processes based on whether they are initiated in response to a customer order (pull) or in anticipation of a customer order (push). This view is useful when considering strategic decisions relating to supply chain design. Copyright © 2016 Pearson Education, Inc. 1 – 39  Supply Chain Macro Processes Supply chain processes discussed in the two views can be classified into 1. Customer Relationship Management (CRM): all processes at the interface between the firm and its customers 2. Internal Supply Chain Management (ISCM): all processes that are internal to the firm 3. Supplier Relationship Management (SRM): all processes at the interface between the firm and its suppliers Copyright © 2016 Pearson Education, Inc. 1 – 40  Key Point Within a firm, all supply chain activities belong to one of three macro processes: CRM, ISCM, and SRM. Integration among the three macro processes is crucial for successful supply chain management. Copyright © 2016 Pearson Education, Inc. 1 – 41  Supply Chain Macro Processes FIGURE 1-8 Copyright © 2016 Pearson Education, Inc. 1 – 42  Macro Process in SCM #1 1) Customer Relationship Management (Generate customer demand & facilitate transmission & tracking of orders). Sub-processes: 1. Marketing: identifying which customers to target, how to target customers, product & price offering, how to manage campaigns targeting customers. Analytics improving marketing decisions on pricing, profitability 2. Sell: Contact management (info needed to make sale) – quote due dates, Product info, Order Configuration. Executing the actual sale. Accessing info related to a customer order 3. Order Management: Track delivery info: visibility across SC Copyright © 2016 Pearson Education, Inc. 1 – 43  Macro Process #2 Internal SCM (All processes for planning & fulfilling customer orders – ‘core” & commonly called SCM by the software industry. Sub-processes: Strategic Planning of resource availability in the SC network. Where to locate plants/WH, & markets served Demand Planning: Forecasts including promotions Supply Planning: Factory & Inventory Planning Fulfillment: Warehousing & Transportation Field Service: Inventory for spare parts, Scheduling Service Calls Copyright © 2016 Pearson Education, Inc. 1 – 44  Macro Process #3 Supplier Relationship Management (Integrating supplier constraints to the organization). Sub- Processes: 1) Design Collaboration – reduce design costs Joint selection of components for manufacturability, variety management (commonality) Engineering change management 2) Sourcing (evaluate vendor on lead time, reliability, quality & price). Contract management on volume bought 3) Negotiation: Specify price & delivery conditions that meets the enterprise needs. Automate the RFQ process 4) Buying: Create, manage POs, Automate procurement 5) Collaborate on forecasts, production & inventory Copyright © 2016 Pearson Education, Inc. 1 – 45 Use of Information in a Supply Chain  Decision Making  Strategic: location decisions  Operational: what products will be produced during today’s production run  Inventory: demand patterns, carrying costs, stockout costs, ordering costs  Transportation: costs, customer locations, shipment sizes  Facility: location, capacity, schedules of a facility; need information about trade-offs between flexibility and efficiency, demand, exchange rates, taxes, etc. Copyright © 2016 Pearson Education, Inc. 1 – 46  Characteristics Of Information To achieve global scope of the supply chain :  Information must be ACCURATE  Information must be UP-TO-DATE  Information must be accessible in ANY TIME  Information must be of the RIGHT KIND to the RIGHT PERSON  Provides supply chain visibility Copyright © 2016 Pearson Education, Inc. 1 – 47 Steps in using Info in IT systems to improve Operational performance IT Systems (Hardware & Software) in Enterprises are used to:  Identify an operational problem: e.g. Production & Inventory is not optimized – Lack customer info  Gain awareness/collect Information  Analyze the Information  Capture & Deliver needed Information Make to make good decisions that maximize the performance & profitability of the supply chain  Execute/Act on the decisions Copyright © 2016 Pearson Education, Inc. 1 – 48  IT : The Information Enabler at 3 Different Phases 3 different phases in decisions making in every organization : Analysis: Strategic __________ Facility Location Tactical: Demand Planning Planning __________ Supply Planning Operational __________ Operational (Daily): Daily production & procurement Field servicing: spares Copyright © 2016 Pearson Education, Inc. 1 – 49  IT : The Information Enabler at 3 Different Phases Levels of Functionality High Level in Little Low Level Strategic Organisation Long Time Frame Detail Highly Analytical Planning Low Level in Lots of Low Level Mostly Operational Organisation Short Time Frame Detail Transactional Supplier Manufacturer Distributor Retailer Customer © 2014 Pearson Education 1 - 50 3 Stages of System Development 1. Operational Requirements - (4 Supply Chain Cycles) 2. Software Design - (3 Major Processes) 3. Actual Software Produced Copyright © 2016 Pearson Education, Inc. 1 – 51 3 Layers of System Development 3 LAYERS CONSISTING OF: #1: Operation 4 Supply 1:Cust 2:Replen 3:Mfg 4:Procure Requirements Chain Cycles #2: Software 3 Macro 1:CRM 2:ISCM 3:SRM Design Software Processes #3: Software 1.MRP 2.MRPII 3.ERP Actually 4.Analytics 5.e-Business Produced Copyright © 2016 Pearson Education, Inc. 1 – 52  Case Studies of Supply Chains  Gateway and Apple  Zara  Toyota  Amazon  Macy's  Giant Bicycles https://www.youtube.com/watch?v=EM0N4dzewIg Copyright © 2016 Pearson Education, Inc. 1 – 53 Gateway and Apple 1. Why did Gateway choose not to carry any finished-product inventory at its retail stores? Why did Apple choose to carry inventory at its stores? 2. Should a firm with an investment in retail stores carry any finished- goods inventory? What are the characteristics of products that are most suitable to be carried in finished-goods inventory? What characterizes products that are best manufactured to order? 3. How does product variety affect the level of inventory a retail store must carry? 4. Is a direct selling supply chain without retail stores always less expensive than a supply chain with retail stores? 5. What factors explain the success of Apple retail and the failure of Gateway country stores? Copyright © 2016 Pearson Education, Inc. 1 – 54  Zara 1. What advantage does Zara gain against the competition by having a very responsive supply chain? 2. Why has Inditex chosen to have both in-house manufacturing and outsourced manufacturing? Why has Inditex maintained manufacturing capacity in Europe even though manufacturing in Asia is much cheaper? 3. Why does Zara source products with uncertain demand from local manufacturers and products with predictable demand from Asian manufacturers? 4. What advantage does Zara gain from replenishing its stores multiple times a week compared to a less frequent schedule? How does the frequency of replenishment affect the design of its distribution system? 5. Do you think Zara’s responsive replenishment infrastructure is better suited for online sales or retail sales? Copyright © 2016 Pearson Education, Inc. 1 – 55  Toyota 1. Where should the plants be located, and what degree of flexibility should be built into each? What capacity should each plant have? 2. Should plants be able to produce for all markets or only for specific contingency markets? 3. How should markets be allocated to plants and how frequently should this allocation be revised? 4. How should the investment in flexibility be valued? Copyright © 2016 Pearson Education, Inc. 1 – 56  Amazon 1. Why is Amazon building more warehouses as it grows? How many warehouses should it have and where should they be located? 2. Should Amazon stock every product it sells? 3. What advantage can bricks-and-mortar players derive from setting up an online channel? How should they use the two channels to gain maximum advantage? 4. What advantages and disadvantages does the online channel enjoy in the sale of shoes and diapers relative to a retail store? 5. For what products does the online channel offer the greater advantage relative to retail stores? What characterizes these products? Copyright © 2016 Pearson Education, Inc. 1 – 57  Macy's 1. Should online orders be filled from stores or fulfillment centers? 2. How should store inventories be managed in an omni- channel setting? 3. Should returns be kept at a store or sent to a fulfillment center? Copyright © 2016 Pearson Education, Inc. 1 – 58  Key Learning Points Summary 1. Discuss the goal of a supply chain and explain the impact of supply chain decisions on the success of a firm. 2. Identify the three key supply chain decision phases and explain the significance of each one. 3. Describe the cycle and push/pull views of a supply chain. 4. Classify the supply chain macro processes in a firm. Copyright © 2016 Pearson Education, Inc. 1 – 59